The legislature is not barred from enacting statutes even if those contravene international treaties within the meaning of Art. 59 sec. 2 sentence 1 of the Basic Law (Grundgesetz – GG). Such was the decision of the Second Senate in an order published today within the context of a specific judicial review relating to the Double Taxation Treaty concluded between Germany and Turkey in 1985 (Abkommen zur Vermeidung der Doppelbesteuerung zwischen Deutschland und der Türkei von 1985 – DTT Turkey 1985). Art. 59 sec. 2 sentence 1 GG provides that, in the national context, international treaties have the same rank as statutory federal law, unless they fall within the scope of a more specific constitutional provision that deals with the relationship between domestic and international law and accords a different rank to such international treaties (Öffnungsklausel) (Arts. 1 sec. 2, 23, 24 GG). The principle of democracy requires that, within the boundaries set by the Basic Law, later legislatures be able to revoke legal acts of previous legislatures. Neither the rule of law nor the principle of the Constitution’s openness to international law (Grundsatz der Völkerrechtsfreundlichkeit des Grundgesetzes) yield a different result. Although the latter principle is also of constitutional rank, it does not entail an absolute constitutional duty to obey all rules of international law. Justice König filed a separate opinion.

Facts of the Case and Procedural History:

In a now defunct 1985 treaty aimed at avoiding double taxation (DTT Turkey 1985), Germany and Turkey inter alia agreed that income from employment earned in Turkey by persons fully liable for German taxes does not count into the basis of assessment (Bemessungsgrundlage) for German taxes and may only be used to set the tax rate (Steuersatz) for other sources of income. According to § 50d sec. 8 sentence 1 of the Income Tax Act (Einkommensteuergesetz– EStG) as amended by the 2003 Tax Amendment Act and in force today, the exemption “will only be granted, irrespective of the applicable [double taxation] treaty, if the citizen liable for taxation shows that the state entitled under the treaty to exercise the right of taxation has waived this right or that the taxes assessed by this state on the basis of the income in question have been paid”. In the initial proceedings, the plaintiffs – a married couple whose taxes are jointly assessed – challenged their income tax bill for the year 2004. The husband had earned income from employment in Germany and in Turkey. Since the couple had not shown that the income earned in Turkey had been taxed there or that Turkey had waived its right of taxation, the tax office had treated the entire gross income from employment as taxable. Legal recourse before the finance court remained without success. By order of 10 January 2012, the Federal Court of Finance suspended the appeal proceedings in order to obtain a decision by the Federal Constitutional Court on whether § 50d sec. 5 sentence 1 EStG is constitutional.

Key Considerations of the Senate:

According to § 80 sec. 2 sentence 1 of the Federal Constitutional Court Act (Bundesverfassungsgerichtsgesetz – BVerfGG), the referring court is required to show how its decision depends on the validity of the legal provision in question and with which superior legal provisions within the German legal order [translator’s note: i.e. provisions of the Basic Law, or – in the case of federal state law – also of federal law] that provision is incompatible. In doing so, it must provide the facts of the case, analyse the applicable ordinary law, detail its relevant jurisprudence, and consider the legal views developed by legal scholarship and jurisprudence. However, § 80 sec. 2 sentence 1 BVerfGG does not require the referring court to mention and elaborate on every single conceivable legal view. In principle, the issue of whether the validity of the legal provision in question is essential to the referring court’s decision is determined by that court’s legal view – unless that view is obviously absolutely untenable. According to these standards, the referral is admissible.

a) Under the system of the Basic Law, international treaties have the same rank as statutory federal law. Therefore, they can be superseded by later federal statutes that contradict them.

aa) Within the German legal order, the rank and classification of an international treaty are determined by the Basic Law, several provisions of which regulate the relationship between international and national law. Since the effectiveness and applicability of international law within the German legal order depend on the Basic Law, they can also be limited by the Constitution. This may lead to discrepancies between the law effective in the national legal order and the state’s international obligations.

bb) Art. 25 sentence 2 GG provides that, in the national legal order, general rules of public international law rank above statutory law but below the Constitution. These general rules of public international law include customary international law and the general principles of international law, i.e. those rules of international law that bind all states, or at least most of them, irrespective of having been contractually recognised by them. Therefore, in principle, specific provisions of international treaties do not benefit from the precedence provided for in Art. 25 sentence 2 GG. In contrast to other legal systems, the Basic Law does not acknowledge a general precedence of international treaties over ordinary statutory law.

According to Art. 59 sec. 2 sentence 1 GG, international treaties that regulate the political relations of the Federation or that concern objects for which the Federation has the legislative competence enter into effect within the national legal order only after the necessary parliamentary Act of Assent has been passed. Furthermore, it follows from Art. 59 sec. 2 sentence 1 GG that, within the national legal order, international treaties, unless they fall within the scope of another more specific “opening clause” – particularly Arts. 23-25 GG –, have the same rank as statutory federal law and do not rank above it, and in particular not at a constitutional level.

Although the principle that agreements must be kept (“pacta sunt servanda”), which is recognised as a general rule of public international law, establishes a particular duty (under public international law) of the state vis à vis its contractual partner, it does not regulate the effectiveness or rank of international treaties within the national legal order. In particular, it does not make all provisions of international treaties general rules of public international law within the meaning of Art. 25 GG that would take precedence over statutory law.

cc) Art. 59 sec. 2 sentence 1 GG does not invalidate the principle that (federal) statutes are superseded by later (federal) statutes contradicting them (“lex posterior derogat legi priori”). The legal view claiming the opposite cannot prevail since, inter alia, it contravenes the principles of democracy and parliamentary discontinuity (Grundsatz der parlamentarischen Diskontinuität). Power in democracy is but temporary. It would be irreconcilable with this concept if Parliament could bind its successors and limit their ability to rescind or correct past legislative decisions. This would set political views in stone. Moreover, the legislature is not competent for denouncing international treaties. Hence, Parliament must be able to deviate from international treaties at least within the scope of its competences.

The jurisprudence of the Federal Constitutional Court does not preclude newer federal statutes from superseding provisions of public international law that conflict with them. In particular – and contrary to one legal view [held among legal scholars and by the referring court], the Federal Constitutional Court’s Görgülü order (Decisions of the Federal Constitutional Court, Entscheidungen des Bundesverfassungsgerichts – BVerfGE 111, 307) did not contain a holding to the effect that the legislature may deviate from international treaties only to protect fundamental constitutional principles. That order did not touch upon the consequences a violation by the legislature of international treaty law might have, but only addressed the legal consequences of regular courts insufficiently taking into account public international law. Moreover, the Görgülü order concerned the importance of the European Convention on Human Rights – a treaty concerning the protection of human rights, a matter that is specifically enshrined in Art. 1 sec. 2 GG.

dd) Public international law does not preclude the effectiveness on the national level of legal acts that violate public international law. Although it requires the states to perform in good faith the treaties they have entered into (Art. 26 of the Vienna Convention on the Law of Treaties, VCLT), it only precludes them from invoking national law to justify breaches of international obligations on the level of public international law (Art. 27 sentence 1 VCLT). Thus, public international law leaves it to the states to determine the consequences on the national level of collisions between international treaties and national laws according to the national rules governing the relationship between international and national law as well as those governing the conflict of laws. Hence, states may accord their national law precedence in cases of conflict. Nevertheless, such actions result in a breach of public international law that may yield consequences. Minor infractions generally entitle other states only to denounce the treaty in the cases and under the conditions envisaged in Art. 56 VCLT, to demand that the treaty be properly performed, or – as a subsidiary measure – to demand pecuniary reparation. In case of major infractions, other states parties may be entitled to terminate the treaty or to suspend its operation, irrespective of whether the treaty provides for a right of denunciation (Art. 60 VCLT).

ee) Nor does it follow from the unwritten principle of openness to international law that national statutes contravening international treaties are unconstitutional.

The principle of openness to international law has constitutional rank. It can be derived from the system of the constitutional provisions governing the relationship between Germany and the international community (in particular Arts. 23-26 and 59 sec. 2 GG). These provisions reflect the decision of the Basic Law in favour of international cooperation on the basis of respect and promotion of international law.

However, the principle of openness to international law does not entail an absolute constitutional duty to obey all rules of international law. Such an obligation would be contrary to the Basic Law’s differentiating provisions on the domestic rank of international law from which the principle of openness to international law is derived. According to the jurisprudence of the Federal Constitutional Court, the principle in particular serves as a guideline for the interpretation of fundamental rights, the constitutional principles derived from the rule of law, as well as statutory law. The jurisprudence of the Federal Constitutional Court’s chambers has further specified that, within the scope of the applicable methodical principles, one must always choose an interpretation that is favourable to international law. However, the principle of openness to international law […] does not apply in a way that is absolute and independent of the methodical limits of statutory interpretation.

Therefore, Art. 59 sec. 2 sentence 1 GG cannot be interpreted – in a way that is favourable to international law – to mean that the legislature may only in exceptional cases, i.e. only to prevent a violation of fundamental constitutional principles, override obligations under international law. Such an interpretation would be untenable under methodical aspects. This becomes particularly clear looking at double taxation treaties: Since double taxation treaties do not usually violate fundamental constitutional principles, de facto, they would – like the general rules of international law – generally rank above statutory law. However, such an equalisation would contravene the differentiation the constitutional legislature made in Arts. 25 and 59 sec. 2 GG. Interpretation of Art. 59 sec. 2 GG cannot ignore this fact – not even by invoking the principle of openness to international law.

ff) Lastly, in contrast to a legal view taken up by the Federal Court of Finance, unilateral treaty overrides are not unconstitutional for violating the rule of law. Interpretations of the Basic Law’s rule of law principle must satisfy the requirements of systematic constitutional interpretation. Interpretations (supposedly) based on the rule of law are limited at least by the Basic Law’s express provisions and by the principle of democracy. Therefore, even limited precedence of international treaty law over statutory law – particularly precedence that would contravene Arts. 25 sentence 2, 59 sec. 2 GG –, or limitations on the “lex posterior principle” cannot be derived from the rule of law principle.

b) Measured by these standards, § 50d sec. 8 sentence 1 EStG does not violate the Basic Law – irrespective of whether it truly constitutes a treaty override.

DTT Turkey 1985 is an international treaty. Thus, the standard for the constitutional review of an override of DTT Turkey 1985 is Art. 59 sec. 2 sentence 1 GG. Since, pursuant to Art. 20 sec. 3 GG, the legislature is bound only by the constitutional order and not by statutory law, it can rescind or alter the Act of Assent to DTT Turkey 1985 by passing laws that contravene the content of the double taxation treaty – irrespective of the continued international binding effect of DTT Turkey 1985. As explained, neither the principle of openness to international law nor the rule of law principle yield a different result.

Even if one were to assume that the permissibility of treaty overrides crucially depends on the legislature’ ability to end a (partly) no longer desired treaty in accordance with public international law, this would not render overrides impermissible. For, irrespective of whether denunciation is permissible under international law, the Basic Law does not allow the legislature to denounce international treaties (Art. 59 sec. 1 GG). Therefore, contrary to the view of the Federal Court of Finance, denouncing the double taxation treaty in order to renegotiate it and introduce the legislature’s own concepts does not constitute a less intrusive means of satisfying the principle of democracy.

c) § 50d sec. 8 sentence 1 EStG is compatible also with Art. 3 sec. 1 GG. While that provision differentiates between persons who are denied the preferential treatment of being exempted from German taxes because they did not provide the required evidence and persons who furnish such evidence who are exempt, and while § 50d sec. 8 sentence 1 EStG requires such evidence only for income from employment and not for other sources of income, this differentiation is sufficiently justified by a factual reason: By making the tax exemption dependent on providing relevant evidence as stipulated in § 50d sec. 8 sentence 1 EStG, the legislature aimed at counteracting the danger of abuse, which is higher in cases of exemptions for income from employment than in cases of income from other sources.

Separate Opinion of Justice König:

Neither the decision by the Senate’s majority nor its reasoning can convince me. The decision essentially upholds a legal view presented by the Second Senate in its 1957 judgment on the Reichskonkordat. In today’s globalised world, in which the states are linked by a multitude of international treaties that govern a large variety of issues, I hold this legal view (now) to be outdated. Rather, it is necessary to strike an appropriate balance between the principle of democracy on the one hand and the rule of law principle in conjunction with the principle of openness to international law on the other hand.

In striking this balance, one should particularly look at the following criteria: the aim pursued by the later statute as well as its relevance to the common good; the effects on the legal situation of the individuals who benefit from the international provision; the urgency of the deviating provision; the possibility of using reasonable means of ending the international obligation in accordance with public international law, e.g. issuing an interpretative statement, denouncing or modifying the treaty; as well as the legal consequences of a breach of public international law.

The proposed solution leads neither to an unconditional submission of the German legal order to international law, nor to absolute precedence of international law even over constitutional law. However, it obliges the (later) legislature to diligently weigh the various aspects mentioned above before deliberately deviating from an international treaty. Although it is true that Parliament cannot itself denounce or suspend an international treaty, it can express its political intentions and demand that Government take corresponding external steps. Since the proposed solution does not have a general “blocking effect”, it does not undermine the systematic concept of Arts. 25 and 59 sec. 2 GG. The legislature retains the competence to override international treaties, which flows from the principle of democracy; however, the rule of law interpreted in light of the principle of openness to international law gives rise to limitations concerning the exercise of this competence.

According to these standards, § 50d sec. 8 sentence 1 EStG as amended by the 2003 Tax Amendment Act would not be compatible with the Basic Law. It constitutes a treaty override in violation of international law. In weighing the abovementioned criteria, it is the aspects arguing for the unconstitutionality of the treaty override that hold more weight. In particular, the treaty could have been denounced and renegotiated, as eventually happened in 2011.

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